Foot Long Inflation – long gone are the days of the $5 foot long, or even consistent pricing throughout their restaurants. Now Subway is focusing on advertising length of price, including foot-long cookies and churros. Wendy’s is investing $30M into AI powered digital menus that track consumer habits and will increase profit, whether it is ‘dynamic pricing’ or ‘surge pricing’ time will tell, but it seems unlikely that it will benefit the consumer. While consumers have become accustomed to surge pricing for services like rideshare, the public considers it a practice of price gouging to charge more for necessities like food or water when demand increases.
Mortgage Rates increased this week by approximately 0.25% as the price of Mortgage Backed Securities (MBS) tumbled after a hotter than anticipated CPI report. Rates are up 0.75% from this time last year.
Inflation – the March Consumer Price Index (CPI) report showed overall inflation rose 0.4% for the month and is now up 3.5% year over year, a 0.3% increase from last month’s reading. The core rate, which strips out food and energy, increased by 0.4% during March and is up 3.8% year over year. Shelter costs, which make up 45% of the core index, rose 0.4% and are up 5.7% year over year. The uptick in CPI caused mortgage rates to increase.
The March Producer Price Index (PPI) which measures wholesale or producer inflation rose 0.2% in March, slightly lower than expectations. Year over year the index is up from 1.6% to 2.1%. Food prices increased 0.8% in March and are up 1% year over year. Chicken prices are up 10.7%. The core rate increased 0.2% and is up 2.4% year over year. This index release didn’t significantly impact the price of MBS like the CPI did.
Optimism – the NFIB Small Business Optimism Index fell from 89.4 to 88.5 in March, the lowest reading since December 2012. Plans to hire declined a point to 11%, the lowest reading since 2016.
Fed the Fed released their minutes and we didn’t see additional insight on rate cuts, but they did provide more details on plans to slow their balance sheet runoff. Essentially for bond holdings that mature on certain date they can decide to purchase more or hold the funds. Currently they are letting $60B in Treasuries and $35B in MBS ‘runoff’ their balance sheet monthly. Most members are supporting reduces this by half, meaning the Fed will be making significant monthly bond purchases which would help the price of MBS and mortgage rates.
Mortgage Applications to purchase home fell 5% last week and are down 23% year over year. Refinances increased 10% last week and are up 4% from last year.